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What happens at the end of a car finance agreement?

Wondering what happens at the end of a car finance agreement? No matter whether you have an HP, PCP, PCH or personal loan, we’re here to help guide you through the options available

Written by Verity Hogan
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When you first sign on the dotted line and get the keys to your dream vehicle, what happens at the end of your car finance agreement is probably the last thing on your mind. But you might be surprised by how quickly a three, four, or even five-year term can speed by; don’t worry, we’re here to help guide you through the next steps.

It all depends on the type of car finance agreement you have; a PCP loan works very differently to an HP loan when you reach the end of your term. If you’re getting close to the end date, the finance company should get in contact with you. Typically, they’ll get in touch at least a month before your final payment is due to remind you that the contract expires soon and let you know the options you have available. Don’t be surprised if they contact you up to six months in advance, especially if you have a PCP agreement and positive equity in the car as you might be able to upgrade early.

What happens at the end of a HP car finance agreement?

When you choose an HP – or hire purchase – agreement, the loan is secured against the vehicle, and you’ll be working towards owning it. When you reach the end of your car finance agreement and have covered the entire cost of the car, it’ll be all yours! Keep in mind that this only applies if you’ve kept up with all your repayments. You might also be asked to pay a small admin charge called the ‘Option to Purchase’ fee before taking ownership of the car.

Remember that, under the terms of HP car finance, your car will belong to the finance company until you’ve finished making all the repayments. You can’t make any changes to the car without permission or sell it during your loan term.

What happens at the end of a PCP car finance agreement?

Unlike HP, with a PCP – or personal contract purchase – agreement, you have options at the end of your loan term. You can either choose to return the car to the finance company, buy it by paying the one-off balloon payment, or trade it in for a new loan if you’re in positive equity.

If you choose to return your car…

If you’ve come to the end of the road and know you want to hand your car back, it’s good practice to let the lender know in advance. This gives them the opportunity to arrange an inspection and book a time to come and collect the car that’s convenient for both sides.

Before handing over the keys:

  • Gather all the original documents including your V5C logbook and driver handbooks as well as any equipment provided with the car such as a set of spare keys and the parcel shelf.

  • Clean the car thoroughly inside and out.

The car will be inspected using the industry’s standard Fair Wear and Tear guidelines. These set out the type of damage that’s deemed normal for a used car, which varies depending on the length of your agreement and the agreed mileage. Small scratches and scuffs will usually be okay, but any larger bumps and scrapes could lead to additional charges.

Once the inspection is complete, you’ll be asked to sign to say that you accept the findings – make sure you ask for a copy for your own records. Expect to wait around four weeks to find out if you have any extra fees to pay.

To avoid the chances of having extra charges, carry out a thorough inspection yourself two months before your agreement ends. It can sometimes be cheaper to get any issues you find repaired ahead of time rather than waiting until you hand the car back. It’s also important that you agree the correct mileage amount at the start of your agreement. We know that life can be unpredictable, and you might end up travelling further than you thought but you will be charged for any excess miles you rack up. The rate per mile for going over your limit can be high so it’s best to choose an agreement that gives you plenty of miles to play with.  

If you choose to buy the car…

If you’ve fallen in love with your car and can’t imagine driving anything else, you can choose to buy it at the end of your PCP agreement. You’ll need to pay a one-off balloon payment to own the car. This amount is determined at the start of your loan period, and it’s based on how much the lender thinks your car will be worth at the end of the term.

Read over your agreement to double-check your balloon payment figure but it can range from hundreds to thousands of pounds depending on the vehicle you chose. If the final amount would wipe out all your savings in one go, you might be able to secure a refinance loan and break the cost down into affordable monthly repayments.

If you choose to trade in the car…

With PCP car finance, you might be able to trade in your car as a deposit in a new deal if you’re in positive equity. To qualify, your car must be worth more than the outstanding balloon payment. You can then use the difference between the car’s expected value and actual value as a deposit when buying a new car on finance. However, if you’re in negative equity – meaning the car is worth less than the balloon payment – it’s generally better to return the car and walk away.

Your car’s future value is influenced by a range of factors and can be difficult to predict as it’s also affected by trends in the used car market. Even so, driving carefully, keeping your mileage low, and taking good care of your car are the best ways to help it hold more value over time.

What happens at the end of a personal loan? 

This finance option stands out from other types of car finance as a personal loan is not usually secured against the car. This means that as soon as you’ve agreed the loan terms and paid the money to buy your car, it’ll be all yours. If you keep up with your repayments throughout your loan period, you can do whatever you like with the vehicle, including sell it! When you reach the end of your personal loan term and paid the full amount including interest, the loan will be marked as repaid and you won’t face any other charges.

What happens at the end of a lease?

Unlike a personal loan, when you drive a car under a long-term lease – often known as personal contract hire (PCH) – you’ll never own it. We don’t currently offer PCH deals but, if you already hire a vehicle and are about to reach the end of your lease, you can choose to either hand the car back or opt to renew your lease. Keep in mind that you might be charged if you’ve damaged the car or exceeded the agreed mileage limit.

Will I own the car at the end of the finance term?

You’ll own the car at the end of your finance term if you have chosen a hire purchase agreement or personal loan and have made all your repayments. With an HP loan, you might also need to pay an admin charge known as the ‘Option to Purchase fee’ to transfer ownership of the car into your name.

If you’ve reached the end of a personal contract purchase agreement, you won’t automatically own the car. In fact, you’ll only own it if you choose to pay the one-off balloon payment.

With a personal contract hire agreement, you’ll never own the car and will need to either hand it back or extend the lease when you reach the end of your term.

Can I end my car finance agreement early?

Depending on your personal circumstances, you may be able to end your car finance agreement early. First, contact your lender to request the settlement figure – this is the amount you’ll need to pay to end your finance agreement. Typically, this will be the total of all your outstanding monthly loan instalments minus any future interest that you won’t need to pay. The further you are into your agreement, the lower your settlement figure will be, but be aware that you might need to pay an early settlement fee too.

If you’re struggling to keep up with your car finance repayments and can’t pay the settlement figure, you might want to opt for voluntary termination. Under UK law, you have the right to voluntary terminate a PCP or HP agreement if you’ve paid 50% of the total amount payable (that includes interest, charges, and the balloon payment in a PCP). If you’ve already paid over 50%, you can simply hand the car back to the finance company.

Verity Hogan

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